With new high on NIFTY achieved, markets to turn choppy (Market Outlook)

Markets continued their upward momentum and gained on all the five trading days last week. It was a slow start in the initial part of the week and ended with a flourish on Friday when NIFTY made a new lifetime high. BSESENSEX gained 882.08 points or 1.75 per cent to close at 51,422.88 points while NIFTY gained 260.35 points or 1.72 per cent to close at 15,435.65 points. The broader markets saw BSE100, BSE200 and BSE500 gain 1.63 per cent, 1.50 per cent and 1.51 per cent, respectively. BSEMIDCAP gained 0.82 per cent while BSESMALLCAP was up 1.51 per cent.

The Indian Rupee gained 39 paisa or 0.54 per cent to close at Rs 72.44 to the US dollar. Dow Jones gained 442.95 points or 0.94 per cent to close at 34,529.45 points.

May series NIFTY futures expired at 15,337.85 points, a gain of 442.95 points or 2.97 per cent. The series gained 162 points during the last four days of expiry. The new series began with a bang and saw NIFTY make a lifetime high at 14,469.65 points, surpassing the February 16 high of 14,431.75 points. Incidentally NIFTY closed higher than this level on Friday as well. BSESENSEX high made on the same date was 52,516.65 points and is currently a good 1,100 points away. It would take another rally for benchmark indices to cross this milestone as the present rally is getting over and seems fatigued. An interesting development is the rally in Reliance industries which is one of the heavyweight stocks in the benchmark indices and hasn’t moved over the last three months. The stock gained Rs 116.70 on Friday and added 345 points to the BSESENSEX. The benchmark index had gained a total of 307.66 points, which means that Reliance alone gained more than what the index gained. The gains and losses by all other stocks put together were compensated as well.

The point being emphasised here is that we would see a period in the markets where they gather their breath once again, consolidate at these levels and allow the rest of the markets to catch up. With Reliance in a dominant position, it would give you a feel that all is well in the markets even though they are correcting.

The Covid-19 front saw the world have 17,06,37,911 patients, 35,48,837 deaths and 15,26,19,598 patients recovering. In India we saw 2,78,94,800 patients, 3,25,998 deaths and 2,54,54,320 patients recovering. Compared to the previous week, the world saw 35,79,812 new patients, 79,913 deaths and 46,23,898 patients recovering. In India we saw 13,64,668 new patients, 26,702 deaths and 20,28,853 patients recovering. The average of new patients has come down significantly from 4.25 lac patients per day to below 1.75 lac patients per day. Further the patients recovering per day is significantly higher than new patients for now over the last 17 consecutive days. Thirdly the production of Covid-19 drug, remdesivir has increased by over ten times per day from the 33k level to 350k level. The Central government has proposed an inventory of 50 lacs as an emergency build-up. Things are looking up on the Covid front from an India perspective.

The week ahead sees RBI meet between June 2 and 4 for its bi-monthly monetary policy meet. While there is consensus on rates remaining unchanged, the markets would like to read the commentary post the meeting. This is particularly important where RBI in its annual report for 2020-21 released during the earlier part of the week, mentioned that they are worried about the rise in stock market prices which have doubled and warns of a stock market bubble.

Coming to the markets in the week ahead, NIFTY has reached a new milestone and has given indications of fatigue setting in. While fatigue does not necessarily mean that markets would go down sharply with Reliance stepping in to do the balancing act, it certainly means a period of consolidation. The BSESENSEX needs to move about 1,100 points to make a new high and that corresponds to roughly 350 points on the NIFTY. Significant headway needs to be made. Hence expect markets to be choppy, sideways, consolidating and regaining its breath and momentum before the next rally.

Trading strategy should be to accumulate stocks on decline and sell on rallies. Shorting the market would not be a good idea at all and could be counterproductive. Trade cautiously and await the next upmove.

(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)